$~8.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 439/2013
Date of decision: 23rd September, 2013
COMMISSIONER OF INCOME TAX-IV
..... Appellant
Through Mr. Kamal Sawhney, Sr. Standing
Counsel.
versus
M/S HERO MANAGEMENT SERVICE LIMITED
..... Respondent
Through Mr. Satyen Sethi, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
This appeal by the Revenue, which pertains to Assessment Year
2007-08, raises two issues. The first issue relates to disallowance
under Section 14A of the Income Tax Act, 1961 and the second issue
relates to disallowance of provision for current liabilities of
Rs.2,51,96,577/-.
2. At the outset, we notice the casual and insouciant approach
adopted by the Assessing Officer, who had made additions of
Rs.6,75,64,435/-, to the returned income of Rs.85,970/- in an order
dated 31st March 2007, which is bereft of contentions being noticed
and rejected by a reasoned discussion.
3. The Assessing Officer applied Rule 8D without even mentioning
ITA No. 439/2013 Page 1 of 5
that pre-conditions for invoking Rule 8D were satisfied. He did not
take into consideration the submission of the respondent-assessee that
the deposit of Rs.2 crores in the Kotak Flour Short-Term Weekly
Dividend Option was made out of share allotment money and the
money deposited did not represent loan. These facts have been noticed
by the appellate authorities, including the tribunal.
4. The assessee had made investment of Rs.2,44,71,261/- in mutual
funds. The substantial investment of Rs.2 crores was made, as noticed
above, from share allotment money. Dividend of Rs.3,95,439 was
received from this fund. Dividend of Rs.153/- and Rs.1649/- was
received from two mutual funds. Thus in all dividend income of
Rs.3,97,241/- was received. The assessee had himself disallowed an
amount of Rs.99,310/- under Section 14A. The tribunal has held that
the aforesaid disallowance was reasonable. The Assessing Officer had
disallowed an amount of Rs.69,65,686/- and held this was the
reasonable expenditure incurred to earn dividend income of
Rs.3,95,439/-. In view of the facts noticed above, the contention of the
revenue is rather far-fetched, if not perverse and illogical.
5. Calculation mistakes while applying Rule 8D were pointed out
by the respondent-assessee, but these have not been adverted to in view
of the findings recorded by the tribunal on merit. Rule 8D is not
retrospective as held by this Court in Maxopp Investment Limited v.
ITA No. 439/2013 Page 2 of 5
CIT, (2012) 347 ITR 272 (Del.). Further to invoke Rule 8D, the
Assessing Officer has to first record a finding that he was not satisfied
with the correctness of the claim for expenditure made by the assessee
in relation to income, which did not form part of the total income under
the Act. No such satisfaction has been recorded by the Assessing
Officer.
6. With regard to the second issue, the Assessing Officer had made
addition of Rs 2,51,96,577; recoding as vide:-
"Disallowance of provision for current liabilities
From the details furnished in respect of provision for
expenses, it is seen that the assessee has made the
following provisions, which are not admissible:
Provision for Salary 2006-07 Rs 1,86,651
Electricity expenses Rs 2,39,80,283
for year 2006-07
now provided
AMC charges of Rs 10,29,643
Serviont Global
dialer
Total Rs 2,51,96,577
Since this provision is not allowable, the amount of Rs
2,51,96,577 is disallowed and added to the income of
the assessee. Since I am satisfied that the assessee has
furnished inaccurate particulars of its income, penalty
proceedings under section 271(1)(c) are being initiated
separately."
7. This is the entire discussion on the said addition, in the
assessment order. The amounts in question are substantial. The
Assessing Officer must discuss the facts before he affirms his final
ITA No. 439/2013 Page 3 of 5
conclusion, especially when significant additions are made creating tax
liability.
8. CIT(Appeals) has observed that the assessee had entered into an
agreement with Palm Court Maintenance Agency and monthly
payment of Rs.15,00,000/- was being paid as on interim
basis/arrangement. The said agency was providing electricity and other
maintenance services in the call centre and back office business
operations. After the end of the of the year on the basis of actual
consumption of electricity etc, settlement of accounts was drawn up by
the agency and agreed to, and thereupon payment of Rs.2,40,85,668/-
was made for the whole year after deducting TDS. We fail to
understand how and on what basis in view of the said factual finding,
the conclusion can be questioned. Similarly, with regard to salary of
Rs.1,86,651/-, it is pointed out that salary pertains to this year but was
paid in the next year. AMC charges of Rs 10,29,643 relate to this year
in question. The Supreme Court decision in Bharat Earth Movers v.
CIT (2000) 245 ITR 428 (SC) is of relevance and observes:-
"The law is settled: If a business liability has definitely
arisen in the accounting year, the deduction should be
allowed although the liability may have to be quantified
and discharged at a future date. What should be certain
is the incurring of the liability. It should also be capable
of being estimated with reasonable certainty though the
actual quantification may not be possible. If these
requirements are satisfied the liability is not a
contingent one. The liability is in present though it will
be discharged at a future date. It does not make any
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difference if the future date on which the liability shall
have to be discharged is not certain . . .
A few principles were laid down by this court, the
relevant of which for our purpose are extracted and
reproduced as under:
(i) For an assessee maintaining his accounts on the
mercantile system, liability already accrued, though to
be discharged at a future date, would be a proper
deduction while working out the profits and gains of his
business, regard being had to the accepted principles of
commercial practice and accountancy. It is not as if
such deduction is permissible only in the case of
amounts actually expended or paid ;
(ii) Just as receipts, though not actual receipts but accrued
due are brought in for income-tax assessment, so also
liabilities accrued due would be taken into account
while working out the profits and gains of the business;
(iii) A condition subsequent, the fulfillment of which may
result in the reduction or even extinction of the liability,
would not have the effect of converting that liability
into a contingent liability ;
(iv) A trader computing his taxable profits for a particular
year may properly deduct not only the payments
actually made to his employees but also the present
value of any payments in respect of their services in
that year to be made in a subsequent year if it can be
satisfactorily estimated."
9. The factual findings recorded by the tribunal in light of the
aforesaid ratio, vindicates the conclusion of the tribunal.
10. In view of the aforesaid discussion, we do not find any reason to
interfere with the impugned order. The appeal has no merit and is
dismissed in limine.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
SEPTEMBER 23, 2013
VKR
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